Let's have a peek at what has been happening with the components of the 60/40 model:
(60% Equity / 40% Fixed Income)
Remember that the idea behind the 60/40 model is balance and diversification over long periods (multiple years). The different asset classes that are represented will have periods of out-performance and under performance over this time, but the mix is intended to drive down volatility and provide target annual average returns of between 7 and 8% over a multiple year time horizon.
Returns are before fees and tax considerations and are based on a broad mix of ETF's with consistent weightings back tested over 11 years, re-balanced quarterly (inclusive of the period 2008-2009), however historical returns are not a guarantee of future returns.
Best performing assets (total return) this year to date (since Jan.1):
Other notable performances:
In reference to the theme that different assets out-perform and under-perform at different times (and justification for sticking with this model over long periods):
last year at this time, the best performers were:
What is a highly important process in this type of model is the on-going re-balancing which trims (sells) the out-performing assets back to their original weighting and redistributes the cash by buying the under-performing assets which are underweight.
This is on-going profit-taking and using the proceeds to pick up under-valued assets.
For example if you trimmed Canadian Preferred Shares (last years out-performer) and picked up International Large Cap Companies (this years out-performer) you have added significant value.
Balance, Diversification and Re-balancing are the keys to successful investing over a multiple year time horizon.
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist